Detroit Bankruptcy’s Is A Costly Endeavor

By Teresa Rivas

Being broke isn’t cheap.

Detroit is finding that out the hard way. Although the Motor City declared bankruptcy, it’s still spending plenty of cash, shelling out hundreds of thousands of dollars on legal expenses, fees for restructuring consultants and retaining appraisers to judge what its art could fetch at auction.

While Detroit isn’t the first municipality to go bankrupt, it’s certainly the largest, and the outsize bills it is incurring have drawn criticism, including from U.S. Bankruptcy Judge Steven Rhodes, who is overseeing the case. While bankrupt corporations routinely typically rack up much big bills, the fact that public money is at stake is a sticking point for many, The Wall Street Journalnotes today: From the day after the bankruptcy filing until Dec. 6, the city paid consultants $10.8 million, and more expenses still loom.

Rhodes isn’t the only critic. Many of the city’s employees and citizens are resentful that lawyers and consultants are profiting while they fret about cuts to pensions and services, while creditors are also balking at money being spent while they have yet to be paid.

However, not much relief is in sight, as Detroit continues to spend money to function, and there seems to be plenty of work for lawyers and consultants ahead.

Amey Stone is Barron’s Income Investing blogger and Current Yield columnist. She was formerly a managing editor at CBS MoneyWatch, MSN Money and AOL DailyFinance. Her responsibilities included overseeing market coverage and personal finance topics. Prior to those roles, she was a senior writer at BusinessWeek where she authored the Street Wise column online and contributed to the magazine’s Inside Wall Street column. Topics covered included economics, corporate finance, Fed policy, municipal bonds, mutual funds and dividend investing. She co-authored King of Capital, a biography of Citigroup Chairman Sandy Weill. She is a graduate of Yale University and Columbia University’s Graduate School of Journalism.